Common Agricultural Policy

HC Deb 07 July 2003 vol 408 cc872-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jim Murphy.]

10.35 pm

Mr. Oliver Letwin (West Dorset)

I originally began to apply for this Adjournment debate when the position was somewhat different from the one that we face now. I had hoped that I might be able to withdraw my application for the debate on the ground that all the issues I wanted to raise had been resolved by a magnificent success in the common agricultural policy negotiations. I hoped that all the concerns expressed by farmers in West Dorset would have been dispensed with. It is indeed the case that some of those concerns have been resolved, but I am afraid that some remain, and in one respect this Adjournment debate has become more useful, and I shall deal with that first.

The Minister will undoubtedly have heard a similar tale from other Members with rural constituencies, but he may be only remotely aware of what has become abundantly clear to me. Some of the farmers in my constituency acquired their farms only recently. They did so in good faith on the basis of the assumption that, whatever the general grant regime and its application to the specific form of agriculture in which they engaged—some are mixed farming enterprises, some pure dairy farms—they would receive the grant or subsidy that attached to the farm that they had bought. Indeed, they bought the farms in the expectation that that would be the case.

The Minister will be aware of the frenzied concern among some of my constituents—and, I suspect, those of other hon. Members—when they believed that the seller of the land, depending on the date of sale, would receive the continuing subsidy under the new CAP regime and that they would not. If that were the case, some of my constituents would have been effectively pauperised, while others would have been quite uncovenantedly enriched. It is not my purpose to deprive any of my constituents of uncovenanted bonuses, but that seemed to me—and to my constituents who would be pauperised by the arrangements—to be very unfair.

I admit that I found the results of the negotiations complex, even by the standards of the CAP, and the Minister will of course have a much deeper understanding of the results than I or, I regret to say, even the most learned of my constituents could expect to acquire. The Minister will correct me if I am mistaken, but I believe that one of the outcomes of the negotiations has been that the national reserve is now available to the Minister and that he also has scope for discretion to resolve the problem equitably within the new structure. In other words, as a result of the negotiations, the Minister is able, on a national and domestic basis, to resolve the concerns of my constituents who might find themselves in the unenviable position of acquiring a farm without acquiring the grants that one would have expected to go with it.

I say that this debate is more apposite even than I had imagined, because I believe that the Minister now has the discretion. In that case I am addressing the right person rather than addressing indirectly an unseen Commission. I believe that the Minister can now resolve the problem and that, in appealing to him, I am appealing to the very man in all of England who can help my farmers to achieve an equitable resolution if they have bought their farms late in the day. If that is the case, I hope that the Minister will reassure me that in the course of the next few weeks and months he will propose a clear scheme that will ensure equitable treatment for those farmers.

I want to turn from that particular issue to a wider question about the effect of the CAP on my farms and, in particular, on my dairy farms. I say, grandly, "my dairy farms". I do not own one personally and there are times when I am profoundly grateful not to be the owner of a dairy farm in West Dorset. The Minister will be well aware from our previous encounters in Adjournment debates, and from the record of my encounters with his predecessors, that the great preponderance of farming in my constituency is dairy farming. Indeed, the preponderance of dairy farming increased as a result of the virtual disappearance of the pig industry from my constituency. I would not be surprised if the present scheme saw a reduction in arable farming in my constituency, so dairy farming may soon be the only kind of farming left in the area. In any event, many of my farmers are dairy farmers.

Of all the people currently residing in this country, my dairy farmers—and, I fear, those in other constituencies—are the people who are least able to understand their predicament, and whose predicament is least comprehensible. They live in an Alice in Wonderland world, in which all the normal rules of economics are reversed. Instead of being allowed to make up for lack of revenue by increasing production, they are prohibited from so doing. Instead of being allowed to price into a market, they are effectively capped, and instead of being able to exert a counterbalancing pressure against the pressures of their customers, they are picked off one by one by much larger intermediaries and supermarkets. In short, they are as cogs in a machine whose working they cannot understand, rather than normal producers in a normal marketplace.

Those points will be familiar to the Minister. Indeed, it was with those points in mind—the Minister will correct me if I am wrong—that the Government rightly went to the negotiating table and sought a decoupling of subsidy from production and an early end to the system of quotas. My dairy farmers would have welcomed with open arms a genuine system of decoupling of payments for the dairy industry and an early end to quotas. They wanted a level playing field and economics that resembled the real world. Such an arrangement would have offered a new lease of life to some of my dairy farmers who are precariously poised on the edge of survival. However, many of my dairy farmers are very disappointed by the prolonged schedule for changes to the quotas; the slow process by which the quotas will be enlarged in the early years; the fact that the later enlargements of the quota have been abandoned, at least for the time being; and the fact that the payments will still not be decoupled during the period in which quotas remain.

On that note, I do not believe that I can be the only Member who is unable to explain to some of my dairy farmers exactly what the solution on decoupling for dairy payments is to be. I say that because, in this case, the NFU, which provides an admirable service in explaining such matters to their members, of whom I am one, says something that no ordinary human being can easily understand. For the sake of my dairy farmers, I hope that the Minister can cast some light on the matter. The NFU report tells us: There will be no decoupling of dairy direct payments until the reform is fully implemented which I can understand— except where a Member State opts for the regional implementation of decoupling where an earlier integration of dairy direct payments is possible. We are currently exploring whether this option will allow the UK to implement decoupling of dairy premia earlier in the UK. The NFU may be exploring that; my farmers would love to explore it, but neither I nor they are capable of doing so. I hope that the Minister will help the House, help me and, more important, help my dairy farmers by explaining whether the UK is actually going to be able to decouple those payments and, if so, at what date, and how that will relate to the phasing out of quotas and/or the enlargement of quotas in the UK.

To return to the point that I was making about farmers who were unlucky enough to buy late in the process, no one in West Dorset who is currently planning investment in the dairy industry, whether it be replacement or new investment, can, given the confusion that reigns in the industry, possibly make a rational investment decision. Early information about what is going to happen is obviously critical if rational investment decisions are to be made.

Finally, will the Minister tell us his understanding of what has been settled for the long term? Farmers in West Dorset are, if anything, long-termists. I suspect that they are by no means unique in that. Were they interested in short-term profit, they would not be in farming today. They look to the long term. Many of them are in farming because many members of their family before them were in farming. Many of them remain in farming in the hope that their children might be persuaded to go into farming. Many of them are willing, as they have been for the past several years, to take what are, in effect, wages that are way below the national minimum wage, or returns that are way below the cost of capital. They live what is almost a subsistence existence in the hope of long-term salvation.

It is thus of great importance that farmers should see clearly where the Minister thinks the future lies. Are they to assume that the current semi-settlement, in relation not only to the decoupling, lack of decoupling or partial decoupling of dairy payments but also to the similar questions on arable and single farm payments and on the whole range of agricultural production, is the first step on the way to a genuine decoupling and genuinely open markets; or are they to assume that this is broadly as good as they will get for the next decade or two? It will be important to my farmers to know, in general, and to the extent that the Minister can tell us, the answer.

If the answer to that question is genuinely uncertain, many farmers will be bound to take a pessimistic view and disinvest. If the answer is that there is cause for optimism in the long term, many of them may sustain for a period what may be difficult times ahead, in the hope of realising that better future. I hope, therefore, that the Minister will be able to give us some guidance and that, in the light of that guidance, my farmers will be able to make rational decisions.

The Minister for Rural Affairs and Local Environmental Quality (Alun Michael)

It is always a pleasure to respond to the right hon. Member for West Dorset (Mr. Letwin) because he always raises issues that relate directly to his constituents' interests, and the House is always at its best when hon. Members relate policies to their constituents. He raises such issues in a questioning and challenging way, not in a confrontational way. I hope that I can help him with some of the issues that he raises, but he needs to wait a little longer on others because, of course, it is only 10 days since we achieved a hard-won decision after long negotiations late into the night over several days.

I endorse the right hon. Gentleman's point about such issues being complicated, but there is complication not so much in the settlement reached in the CAP discussions, but in the CAP on which those negotiations were based, so expecting a clear and simple statement of where the settlement leaves individual farmers is a little way down the road. He rightly acknowledged that a great deal has changed since he originally sought to initiate the debate. Indeed, just 10 days ago, we had considerable success in the negotiations, but I accept the point that these are complex issues.

The right hon. Gentleman referred to farmers taking a long-term view, and I acknowledge that that is the case. Those who have spent several generations in the industry are looking at a period of major change. Indeed, it is fair to say that the farming industry can look forward, with more hope than has been the case for many years, both to the opportunity of being truly competitive and to having its competitiveness and efficiency recognised, and CAP reform is a part of the move in the right direction.

One of the most important contributions in recent years was, of course, the report by Sir Don Curry and the commission on a sustainable future for farming and food, which looked at how to make farming competitive and recommended ways in which individual farmers can take decisions that will increase their returns—the farm-gate prices, as they are described—for the work that they undertake. I point to the seminal importance of that report and the way in which it prepared the ground for the CAP reform.

As the right hon. Gentleman said, some farmers have recently acquired farms, but they could have been in no doubt about the way in which this country wanted to reform the CAP. I believe that I am right in saying that he wants the way in which the regulations result from the reform to be considered. There will be consultation on those regulations, when the issue that he raises can be considered, but the rule of caveat emptor—let the buyer beware—applies, and any purchaser in recent months, or even the last couple of years, must have made a purchase in the knowledge that attempts were being made to reform the CAP. If the results are complex, they are hardly more complex than the situation in which farmers have had to operate for a number of years.

Mr. Letwin

I may not have made myself clear. I do not at all ask the Minister to protect the successor from the effects of the change in the grant regime. I wholly subscribe to his view that purchasers should have been aware that the grant regime would change. The question is whether the new grant will be paid to the new owner, or whether, as has been feared, the grant may in some cases accrue to the old owner, who would thereby be serendipitously enriched, pauperising the new owner, who would have expected to receive the new grant.

Alun Michael

I am not sure that I can give the right hon. Gentleman a complete answer, but let me try. Certainly, some flexibility exists on a national basis to deal with some issues, as we will do once we have examined fully all the options open to us. I believe that the situation is that once farmers have claimed at least 80 per cent. of their entitlement, they are free to transfer some or all of it to another farmer within the same member state, with or without land. However, entitlements may only be leased along with the equivalent number of hectares. Details need to be consulted on, but in principle a capacity exists to respond to some of the issues that the right hon. Gentleman raised.

A national reserve will provide additional means of obtaining entitlements. Those eligible to apply will be defined in Commission implementing rules, so, clearly, we need to examine the detail to know how to respond to them. But they will include new entrants, those who inherited or bought land from 31 May 2003 which was leased during the reference period, those who took on a lease during the reference period and could not adjust the terms of the lease—who could not negotiate a lower rent—and developers who bought land or otherwise made investments to increase production during the reference period. Entitlements received from the national reserve cannot be transferred for five years. I am not sure that that general framework necessarily answers the question in relation to the situation of an individual farmer, but I hope that it does something to illustrate the sort of issues that we will have to consider and responds to some degree to the concerns raised by the right hon. Gentleman.

It is worth looking at the situation in Dorset, and West Dorset in particular. It is an area of mixed farming containing predominantly medium-sized livestock and dairy farms. The right hon. Gentleman rightly expressed concerns that those sectors would be affected. The area will be affected in particular by the introduction of the new single farm payment and further reform of the dairy regime. The detailed impact on farms will depend on how the package is implemented, which will be the subject of consultation. That will be the point at which some of the right hon. Gentleman's concerns, and the concerns of farmers in his constituency, can be raised. Much will also depend on how farmers respond to the new challenges and opportunities that present themselves.

In relation to the right hon. Gentleman's comments about people wanting to continue in the farming industry for many years to come, I am struck by the commitment of many farmers, including young farmers, to the industry, and the imaginative way in which many are finding methods of marketing their product, finding niche markets or banding together through co-operative marketing to make sure that they get a better return. I am also impressed that the predictions are that the reforms through the CAP negotiations are likely to help to increase average farm incomes by some 12 per cent. in this country and possibly by more over a longer period. That, of course, will depend on the details of the implementation. It will also depend on the way in which farmers seek to drive forward their businesses.

For the milk sector, lower intervention prices are likely to feed through to lower farm gate milk prices. Compared with the Agenda 2000 agreement, however, the rate of compensation for price cuts has been improved. Furthermore, those payments are now being phased in faster than the support price cuts—over three years compared with four years of price cuts. That will provide dairy farmers with aid during the important transition period. It is likely, however, that overall the income of the typical dairy farmer will be reduced. Concerns existed about the ways of dealing with dairy reform, particularly the failure to cut prices and end quotas sooner. We would have liked more progress on milk, and particularly an end to quotas. As we have warned, the EU may be forced to return to the matter sooner because of the failure to be more radical. Useful further steps are being taken along the reform path, however, and welcome flexibility exists for member states to take early action on decoupling in the milk sector. We will consult shortly on using that option once we have had further clarification from the Commission on the implications. I am sure that the right hon. Gentleman will agree that we need to be clear about the working through of the decisions taken by the Commission to make sure that we do not introduce unintended consequences in the way that we implement the decisions, especially in relation to early decoupling. The dairy industry has certainly faced immense difficulties during recent years. The right hon. Gentleman explained the situation so courteously that I shall not spend time taking him back through the history of decisions taken by the past Conservative Administration.

The new arrangements on the decoupled single payment will have several advantages. Farmers will be freed from the need to grow specific crops or keep specific numbers of animals because they will instead be allowed to gear their production to the market. There is no doubt that there are examples of farmers who have broken though the system of subsidy and support to engage with their market, sometimes very productively. The arrangements will reduce the negative impact of the CAP on the world's poorest farmers by cutting overproduction of subsidised food, and the incentive to intensify production and damage the market will be removed. The EU will be allowed to engage positively in World Trade Organisation discussions with a significant offer on agricultural trade.

It is hard to overstate the importance of the agreement, which transfers the core elements of the CAP and sets a new direction for its future evolution. In the short term, an increase in farm incomes is predicted. Liberalising the market will reward the efficiency of British farmers and offer them an opportunity to gain benefit from the efficiencies that they have demonstrated for several years—in some ways, they have perhaps been penalised for that due to the way in which the system has operated.

I sympathised with the right hon. Gentleman when he mentioned complexity. Simplifying the CAP will reduce the burden on farmers and will lead to a substantial shift of support from production to a wider range of rural and environmental activities. It is worth making the point that the fact that Britain has taken the lead on modulation has brought forward rural development that is the envy of many other countries in many ways. There is a need for diversification of the wider rural economy but enabling farmers to diversify and allowing their families to move into other areas has had many benefits. I could cite a long list of examples of farmers and farm families in Dorset who have taken advantage of such opportunities.

Breaking the link between farm subsidies and production to reconnect farmers with their markets and reducing damaging environmental impacts and bureaucracy are at the heart of our approach on sustainable food and farming. The CAP has moved in the direction that the Government and the Curry report flagged up. Cross-compliance so that subsidies are dependent on meeting standards for key areas such as the environment and animal health and welfare is also important, as is the reduction of support prices for butter and rice to bring them closer to world prices, which will benefit consumers.

It is fair to say that the deal includes elements that go beyond the Commission's initial proposals, such as the national envelopes enabling schemes that will promote sustainable farming. There will be a further switch of resources to the second pillar and an earlier start for modulation. The second pillar package is more than a third larger than that in the January proposals. We have succeeded in protecting UK farmers from the immediate threat of an unfair settlement as part of the financial discipline process by varying the terms of modulation.

The new single farm payment may be used to replace the plethora of existing bureaucratic direct payment schemes and to free farmers to produce the safe, high-quality food that the market wants. Many of the approaches on marketing in this country are starting to produce results, and it is probably fair to say that that has been more successful in the south-west than in any other part of the country. A clear profile of food from the west country has been developed and the profile of individual counties—Somerset, Devon, Cornwall and Dorset—has been maintained within that. That can only be good for the link between agricultural production and benefits through tourism such as the use of local products by restaurants and the hotel trade, and it will lead to an increasing virtuous circle among the products of the farm economy and a variety of other aspects, such as the wider economy of rural tourism.

As I said, the new single farm payment will be a major step forward. Overall, the proposals are estimated to give rise to net economic—

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at five minutes past Eleven o'clock.